Yegii White Paper on Open Innovation

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1. Yegii Inc. 8 Appleby Road Disruptive Insight | Only the knowledge that matters Wellesley, MA 02482, USA. Tel. +1-978-308-0432 (US) | Email info@yegii.com | http://www.yegii.com | Copyright Yegii Inc. 2014. 1. Open Innovation is an attractive business model. To have open innovation as a business model means to take key strategic input from outsiders as well as insiders in the organization and deploy the insight gleaned in product development efforts. The reason this is attractive is that industries change fast. Knowledge, while sticky, goes stale. 2. There is often resistance towards true open innovation. Everyone, from the CEO, to executives, to middle managers, to expert knowledge workers might feel threatened by the notion that there are ideas they themselves have not thought of. The fact that those imported ideas can have an impact in their domain of responsibility is viewed as an anomaly. 3. The 3rd party innovation market is maturing. Since the idea has been around for decades, most firms say they do open innovation. Many third parties engage in matching organizations to problem solvers and experts. However, firms cannot fully benefit only from being matched to smart people. There must be a process in place to exploit it. 4. The next generation open innovation is very different Increased trust in disintermediation has created opportunities at the higher end of the spectrum. Realizing the true potential of opening up innovation has to do with mobilizing employees and executives to share thoughts with the outside, not just receive input. Expert network? Thats you. 1. Open innovation is an attractive business model To have open innovation as a business model means to take key strategic input from outsiders as well as insiders in the organization and deploy the insight gleaned in product development efforts. The reason this is attractive is that industries change fast. Knowledge, while sticky, goes stale. Smorgasbord refers to a Scandinavian buffet with a variety of delicious, cold foods. It is festive, yet practical. Given that this emerged in Northern Europe, cold food stays cold for a while, and people like it that way. Open innovation, however, quite familiar in Scandinavia, too, does not travel while cold. Thats where the metaphor breaks down. Open innovation actually works around the principle of making sure things are hot. You know how this works, because the all too familiar trend spotting industry works this way,

2. Yegii Inc. 8 Appleby Road Disruptive Insight | Only the knowledge that matters Wellesley, MA 02482, USA. Tel. +1-978-308-0432 (US) | Email info@yegii.com | http://www.yegii.com | Copyright Yegii Inc. 2014. too. Consumer tech is hot. Solar energy is hot. 3D printing is hot. There is no end to the things that somehow are too warm to touch. Sometimes this is the problem. Keeping anything hot is challenging. Nothing would be more commonplace these days than to say you practice open innovation. You cannot survive in the corporate world without it, it would seem. There is an entire service industry catering to it. A new generation consulting firms rush to help firms innovate; NineSigma, Hypios, Ideascale, Induct Software, Innocentive, Inno360, Kaggle, Spigit, Yet2Come, they all have fancy names. Done right, with open innovation you innovate faster, cheaper, and more predictably. If you add the expert networks to it, AskVisory, Cognolink, Coleman Research, The Conference Board, Gerson Lehrman Group (GLG), Guidepoint, HourlyNerd, Maven Research, Skillbridge, Zintro, even LinkedIn, you have the whole nuclear family of knowledge and innovation players. All are featured on Crunchbase, the go-to place for tech startups of the last decade. According to Integrity Research, roughly 25 companies are in the expert network business and the industry is expected to be worth approximately US$325 million in 2012. However, this is only the top of the iceberg since old school consulting is not included. When the bestselling book Wikinomics was published back in 2006, many did not know what mass collaboration was. Words like wiki, crowdsourcing, and social media have since become commonplace. The site, Crowdsourcing.org lists in excess of 2500 websites in the area globally, 195 of them seem to deal with open innovation directly. Just like the online dating industry, using these sites is not embarrassing any more. It is the norm. If you dont collaborate you dont have a job. If you dont share what youre doing, you cease to exist. You go cold, as it were. 2. There is often resistance towards true open innovation Everyone, from the CEO, to executives, to middle managers, to expert knowledge workers might feel threatened by the notion that there are ideas they themselves have not thought of. The fact that those imported ideas can have an impact in their domain of responsibility is viewed as an anomaly. Open innovation challenges the idea of an internal R&D unit, strategy team, or executive team. Rather than come up with everything themselves, they are now asked to prioritize ideas that very visibly come from other parties. Where those ideas earlier were part of an internal process where it was fairly easy to take the credit for the refinement and organizational enactment of ideas originating somewhere inside your own organization, now, the ideas might have been posted online for all to see. For open innovation to work, you need to share early stage ideas and concepts before they are fully formed. You will expose the fact that you have not made up your mind, that you dont have all the answers, or that you dont fully understand what is being asked of you. 3. Yegii Inc. 8 Appleby Road Disruptive Insight | Only the knowledge that matters Wellesley, MA 02482, USA. Tel. +1-978-308-0432 (US) | Email info@yegii.com | http://www.yegii.com | Copyright Yegii Inc. 2014. In some organizations, it is the perceived intellectual property risk that is the most challenging. The legal department might fear that company secrets or strategies are leaking out through the open innovation process, even though that aspect is handled quite well with appropriate confidentiality agreements or managing what information the participants get access to. 3. The third party innovation market is maturing Since the idea has been around for decades, most firms say they do open innovation. Many third parties engage in matching organizations to problem solvers and experts. However, firms cannot fully benefit only from being matched to smart people. There must be a process in place to exploit it. You might wonder how you actually help people invent new things. After all, isnt that hard? Well, there are different approaches. Most players believe web based solutions have something to do with it. These are not the old school knowledge management systems that take ages to learn and that nobody uses. They have nothing to do with the cold, lifeless, corporate intranets of the last few decades. Open innovation platforms are mostly quite simple to use. They have one purpose in mind and one alone: help stimulate ideas to flow around the organization on its own, and enable them to float to the surface whenever theres an opportunity to exploit. To stimulate open innovation, third party providers use a specific type of competitions. By pitting people against each other, they will be motivated to share, is the dogma. Over the last few years, gamification is the norm. Everything has a touch of fun and games. For instance, if you compete to resolve, say, a tiny piece of NASAs next space mission challenge on Innocentive, you compete for a cash prize. On other sites, you compete for points. On all sites, you compete for reputation. Reputation is of course something everybody cares about. However, in the Internet world it was for a long time only assumed that software programmers bothered with it. The first generation of open source software, now ubiquitous, was built on the notion that people did everything for free, as long as they got the credit for some beautiful piece of code in front of their peers. Turns out, we are all like that. We want to show off. We want to be important. And we want others to see it. Dont you? However, procuring and stimulating ideas is not enough to innovate. You must have a process in place to exploit the ideas. This is where many large organizations fail. New ideas are so challenging precisely because they do not follow the business logic of today. Vested interests and investments do not always allow for tinkering. So, spinouts occur. Innovators leave the building. Only when you truly can afford to think that your own organization might have to change as a result of open innovation, can the ideas gain foothold. 4. Yegii Inc. 8 Appleby Road Disruptive Insight | Only the knowledge that matters Wellesley, MA 02482, USA. Tel. +1-978-308-0432 (US) | Email info@yegii.com | http://www.yegii.com | Copyright Yegii Inc. 2014. We know that business model innovation is notoriously hard for larger companies. In the forthcoming book, The Risk-Driven Business Model: Four Questions That Will Define Your Company (2014, Insead Professors Karan and Serguei Netessine state lack of top management support, reluctance to experiment, and failure to pivot as reasons why. Admittedly, most large structures develop set ways. It is the way it is, regardless if we know, as management scholar Rosabeth Moss Kanter famously argued, that giants can learn to dance. Not to let startups off the hook. The only reason business model innovation is slightly easier for smaller, agile players, is that they are constantly working on it. Or, they havent picked one. But that doesnt make it easy. The long and short of it is that unless you are working on your business model, you dont have one. This is not some updated version of Any Groves Only the paranoid survive. No, it simply means that change is happening to us rather than consciously being enacted. It means the structure is shaping our choices for us. Unless, we act to prevent it, that is. 4. The next generation open innovation is very different Increased trust in disintermediation has created opportunities at the higher end of the spectrum. Realizing the true potential of opening up innovation has to do with mobilizing employees and executives to share thoughts with the outside, not just receive input. Expert network? Thats you. Crowdsourcing is currently moving up the value chain and is no longer only for fringe freelance work. For example, Hourly Nerd, a Harvard startup, is using the free time and spare capacity (one would assume night time hours) of current and alumni MBAs from top business schools as their workforce. Business challenges from $250 to $25,000 are solved in hours, days or months, depending on what the case may be. What is so different about these new approaches? Expert networks have always existed. We can at least trace important professional societies to the Middle Ages. The way to learn a trade used to be to learn as an apprentice. For the very ambitious, this meant traveling to those in the world (or the country) who really knew what they were doing. As massive amounts of people wanted to learn, and as capital and ideas accrued, that model was abandoned. That is, we institutionalized learning into institutions called universities. We put people in charge of teaching. We created classrooms and auditoriums. Auditorium means a place where you listen. The advent of the web in the 1990s meant vast amounts of information started to become available at the push of a button. There was less listening. Now, people wanted to be active. But they wanted to engage in their own activities, not in those of their masters, teachers, or parents. 5. Yegii Inc. 8 Appleby Road Disruptive Insight | Only the knowledge that matters Wellesley, MA 02482, USA. Tel. +1-978-308-0432 (US) | Email info@yegii.com | http://www.yegii.com | Copyright Yegii Inc. 2014. Over the last twenty years, we learned how to build online communities, mostly for hobbies and socializing. The last decade has brought life to the idea of tapping into a network of ideas from strangers you may have not met. Only, in the last few years have ome actors have taken crowdsourcing to a professional levelbeginning to source true expertise globally. Some say LinkedIn is an expert network. Most people beg to differ. They actually tried but discovered they were a directory, just like Plaxo. A nice explanation is offered by the anonymous author of the blog Stilltitled.org: An expert network solves three problems. First, discovery. It surfaces those experts, niche or otherwise, whom you need to know. Second, it manages the engagement from qualification to contracts and compliance to connections to compensation. Third, it builds a repository of all past connections for both experts and clients. Its the combination of everything the systems, policies, compliance that makes it work. What distinguishes an expert network from another is not so much the number of experts it purports to contain, but the actual level of expertise of those experts, and how the process of mobilizing that expertise is organized. The most successful use of crowdsourcing involves careful virtual team composition. Another distinguishing feature of open innovation is the focus on content. No experts can operate without content. The current word is big data, which essentially refers to the fact that previously untapped information now can be brought to bear on strategic business challenges because of better information gathering and analysis tools. But the process starts before that. In the beginning there were libraries. Then came book stores. Then came the internet. E- books appeared. Now we essentially have both paper and digital coexisting, although some will have it books have disappeared. Regardless of medium, there is a consistent focus on gathering books, reports, and other data sources in repositories. The huge ones, Library of Congress, British Library, HBS Baker Library, or MIT Library gather millions upon millions of volumes, increasingly in electronic form. They also try to categorize it, but that job I dare say they have almost given up. There are massive metadata initiatives. There are open data sites, notably from the US government eponymous initiative. I remember writing about search engines at the end of my Masters thesis on the Quality criteria of Publishing back in 1996 that they would become tremendously important filters of information. I remember my advisor and the committee didnt really understand or care too much. This was the early days of the internet and there were plenty of such things, AltaVista, Fast Search & Transfer, InfoSeek, Lycos, even Yahoo was in the business in those days. They were viewed as complements to an avant garde pursuit of fetching information from afar just because we could, not because it was particularly useful yet. Yet, what strikes me now, in 2014 is not how right I was in claiming search engines would seem important for a while (although that feels good, too). No, what strikes me is how wrong it is that search engines are still perceived as important. In fact, some say that Google 6. Yegii Inc. 8 Appleby Road Disruptive Insight | Only the knowledge that matters Wellesley, MA 02482, USA. Tel. +1-978-308-0432 (US) | Email info@yegii.com | http://www.yegii.com | Copyright Yegii Inc. 2014. is appropriate to use in the search of information. The problem is, Google is a consumer service that tries to be everything for everyone. That was fine as a strategy to win against all the others, but it will not suffice as a user strategy towards specialist audiences. Who cares that there are billions of pages on the internet? Enterprise grade level products must be able to sift through all the garbage. Not that garbage is the only problem. Good reads is as much of a problem. In the energy sector, to take one, there are enough good reads to last a century. That does not help when trying to pick whats relevant in order to understand the emerging energy landscape and the consequences for a startup or a huge business. What are we left with? Various new players have appeared, such as IPL2 and ReportLinker.com, who attempt to organize the plethora or studies issued all the time and direct us to them and have us pay for it. On the microcuration side, there is Curata, which builds on the success of Twitter and all those weblinks that we used to organize in Digg or not organize at all. Going forward, open innovation will no longer be only about matching passive corporations to eager freelancing experts or content from universities or places afar. Also, it will not be about engaging R&D departments of huge firms or universities. Connecting executives, knowledge workers, experts, and publishers in creative, productive, efficient ways means that everybody has a role, and everybody plays together, whether they are far or near, inside or outside your organizational structure. Three features stand out: Nobody is too busy or too clever to take part in the discussion. If they claim that, they are simply not with it. Decisions are a very small part of innovation. It actually does not take up so much time. Nobody, as in no one person or entity, regardless of their stature or brand, has all the answers. In-house teams dont regardless whether they are a bunch of smart PhDs in the lab, the strategy department, a successful line business, management consultants, or freelancing consultants accessed through expert networks. No one source exists that has all the answers. Whilst the emphasis should be on curating and rank high value content, databases, experts, & reports, it is what they mean in terms of mobilizing to create the architecture of new markets that counts. For that, you need a mix of stakeholders. You need to test and see what sticks. For too long, corporations have accepted the role of strategy consultants in telling them what to do. Nothing could be further from open innovation. Instead, the next generation will be about birthing innovation from within the ranks, enabling insight to emerge. Strategy is nothing but an expression of where a firm is already going. However, knowing where your firm is going is not as simple as to listed to the CEO or look in the annual report. You need to tap into the true innovation flow and capture it; less glamorous, perhaps, but slightly more real. The path from data to decision will still be long. Not all firms eat at the open innovation smorgasbord. They are not hungry enough. 7. Yegii Inc. 8 Appleby Road Disruptive Insight | Only the knowledge that matters Wellesley, MA 02482, USA. Tel. +1-978-308-0432 (US) | Email info@yegii.com | http://www.yegii.com | Copyright Yegii Inc. 2014. References Chesbrough, Henry W. (2003). The Era of Open Innovation. Sloan Management Review. April 15, 2003. http://sloanreview.mit.edu/article/the-era-of-open-innovation/ (accessed 5/20/2014). Cinzia Battistella; Fabio Nonino (2012). Open innovation web-based platforms: The impact of different forms of motivation on collaboration. Innovation: Management, Policy & Practice: Vol. 14, No. 4, pp. 557-575. Evan, Frank (2009). Defining success in open innovation. Nine Sigma White Paper. http://www.ninesigma.com/news-and-events/press-release/2009/new-ninesigma-white- paper-defining-success-in-open-innovation (accessed 5/20/2014). Linkedin does not an expert network make, 14 July 2011, Stilltitled.org: http://stilltitled.com/2011/07/14/linkedin-does-not-an-expert-network-make/ (accessed 1/12/2014). 8. Yegii Inc. 8 Appleby Road Disruptive Insight | Only the knowledge that matters Wellesley, MA 02482, USA. Tel. +1-978-308-0432 (US) | Email info@yegii.com | http://www.yegii.com | Copyright Yegii Inc. 2014. About Yegii Yegii is creating the world's first true insight network. What is an Insight Network? Short answer: people who know something about technology, policy or business. Together, assisted by a man/machine algorithm, we assess which knowledge assetsreports, documents, books, and websites--are valuable and which are not. It doesnt matter if you are an industry professional, an expert, a consultant, or an academic. You need only the knowledge that matters, nothing else. What does Yegii do? Yegii helps people and companies find their innovative edge even during industry disruption. For example, Santander, a global top 5 bank, has asked Yegii about Bitcoins impact on Banks. Bitcoin is an emerging payment system. However, as it exists today, it may remove the need for banks. Will it take off? How soon? What will it look like? Why join Yegii? You seek knowledge in fast moving industries such as healthcare, energy, or manufacturing. To solve business challenges we need experts, thinkers, and doers to join Yegii and become a part of the conversation. Earn money for your insight and become a part of the future of online networking and professional development. Participation is fun, educational, paid, and may change your life. The team behind Yegii has led change projects at Oracle corp., Fidelity, Bertelsmann, Random House, The White House, the European Union, and MIT. Yegii's Advisory Board includes a CEO and a US Air Force General. Yegii's expert network counts CEOs, PhDs, and industry professionals with 10+ years experience across industries. See http://yegii.com/ About the Author Trond Undheim, PhD, is Founder, CEO, Yegii Inc., the insight network, Managing Director Tautec Consulting, and Senior Lecturer, MIT Sloan School of Management. Formerly, he was a Strategy/business dev. executive at Oracle Corp. (2008-12), a Policy maker in the EU doing IT policy & R&D (2004-8), and a Project manager (energy, IT) in a think tank (2002-2004). Trond is a Serial entrepreneur (consulting/incubator/web) with a PhD in Knowledge Management from Norwegian University of Science and Technology (NTNU) and has been a Visiting Research Associate at UC Berkeley. Trond is a frequent speaker on emerging trends, technologies, policies, and business models in several industries, including Energy, Finance, Healthcare, Manufacturing, and Tech. 9. Yegii Inc. 8 Appleby Road Disruptive Insight | Only the knowledge that matters Wellesley, MA 02482, USA. Tel. +1-978-308-0432 (US) | Email info@yegii.com | http://www.yegii.com | Copyright Yegii Inc. 2014. Notes: 10. Yegii Inc. 8 Appleby Road Disruptive Insight | Only the knowledge that matters Wellesley, MA 02482, USA. Tel. +1-978-308-0432 (US) | Email info@yegii.com | http://www.yegii.com | Copyright Yegii Inc. 2014. Berkeley.